CRF Blog

The Nash equilibrium

by David De La Torre

The Economist is publishing a series of six articles on seminal ideas in economics. The fifth article is on the Nash equilibrium, a contribution to game theory.

One example in particular has come to symbolise the equilibrium: the prisoner’s dilemma. Nash used algebra and numbers to set out this situation in an expanded paper published in 1951, but the version familiar to economics students is altogether more gripping. (Nash’s thesis adviser, Albert Tucker, came up with it for a talk he gave to a group of psychologists.)

It involves two mobsters sweating in separate prison cells, each contemplating the same deal offered by the district attorney. If they both confess to a bloody murder, they each face ten years in jail. If one stays quiet while the other snitches, then the snitch will get a reward, while the other will face a lifetime in jail. And if both hold their tongue, then they each face a minor charge, and only a year in the clink …. [more]

The previous four articles can be found here:

George Akerlof’s 1970 paper, “The Market for Lemons”

Minsky’s moment

The Stolper-Samuelson theorem

Fiscal stimulus